Credit card Vs Cash

Credit card can be a very good source to solve your financial problem or when you are facing emergency. But most of the peoples now are using credit card for shopping, especially engage on an “installment plan”. Some even worst, they use the credit card to withdraw “cash advanced” which will be financially killing you in long term!

Installment plan

Most of the shoppers now will not use their cash for shopping, but credit card. Because credit card allow you to buy first pay later, and this indirectly cause a lot of peoples blindly purchase somethings that they don’t need actually. Installment plan provided by the credit card normally will not charge you for interest if you are able to pay timely on every month before the due date, else, they will charge you 1.5% per month on the outstanding balance. Installment plan is widely used since few years ago, this plan somehow provide a financial convenience if you use it wisely. You do not need to pay the full amount for the item purchased but you are able to pay in monthly basis, which is actually solve the financial problems for some peoples in purchase some necessary living needs (i.e. computer).

Installment plan provided by the credit card usually allow you to pay in 6 months, 12 months, 18 months, 24 months and the longest is 36 months. As long as you pay the monthly amount which is pre-calculated based on the total amount on the item purchased, the bank will not charge you any interest.

Cash advanced (withdraw cash from credit card)

Cash advanced, will financially killing you easily. I am personally engage with cash advanced provided by the bank few years ago, and it does help me to solve my financial problem is short term, but do kill financially kill me in long term. For those who are using this cash advanced, they are actually facing a very tight financial problem. They need cash to solve their financial problem and they usually not able to pay back the “advanced cash” withdrawn from the credit card in short term. For my case, i pay back fully in 10 months. Lets see how much interest and so called “processing fee” that i paid by withdrawing 2000 bucks.

Processing fee - 15 bucks per 500 withdrawn, which is equivalent to 60 bucks for 2000 withdrawn.

Interest - This is the most “interesting” part.

The bank charge 1.5% per month on the credit card outstanding balance, i pay 200 bucks 10 days(which is before the interest rolling date) after i withdraw the cash, which means the interest only rolls on the outstanding balance of 1800 bucks.

Assume i pay the monthly installment 200 bucks to the bank:

on 1st month - 1800 X 1.5% = 32.4

on 2nd month - 1832.4 X 1.5% = 27.48

on 3rd month - 1659.8 X 1.5% = 24.89

on 4th month - 1484.69 X 1.5% = 22.27

on 5th month - 1306.96 X 1.5% = 19.6

on 6th month - 1126.56 X 1.5% = 16.8

on 7th month - 943.36 X 1.5% = 14.15

on 8th month - 757.51 X 1.5% = 11.36

on 9th month - 568.87 X 1.5% = 8.5

on 10th month - 377.37 X 1.5% = 5.66

on 11th month - 183.03 X 1.5% = 2.74

on 12th month - I pay 185.77 to settle the full payment. Let see how much interest that i had pay for withdrawing 2000 bucks from the credit card.

32.4 + 27.48 + 24.89 + 22.27 + 19.6 + 16.8 + 14.15 + 11.36 + 8.5 + 5.66 + 2.74 + 60= 245.85

I paid 185 bucks for 2000 cash advanced, this amount is calculated based on a timely installment of 200 bucks per month. If you skip the monthly payment or you have a late payment, the interest will be definitely higher.